13Aug13

Justice Department sues to block AMR-US Airways merger; stocks fall

The U.S. Justice Department filed an unexpected lawsuit on Tuesday to block the
merger of American Airlines parent AMR Corp and US Airways Group Inc, saying
the deal would hurt consumers by leading to higher fares and fees.

The $11 billion merger would create the world's largest airline, after four other
major U.S. carriers combined in recent years.

The antitrust lawsuit, filed in U.S. District Court for the District of Columbia and
joined by several states including Arizona and Texas, drew concern from industry
experts, support from consumer advocates and triggered a 6 percent sell-off in
U.S. airline stocks.

It also threw into question the reorganization plan of AMR Corp, which has been
in bankruptcy since November 2011 and had structured its exit around merging
with US Air.

US Airways fell 7.4 percent to $17.43 on the New York Stock Exchange.
American shares were down 46 percent at $3.14 in Pink Sheets trading.

The Justice Department said its lawsuit seeks to preserve competition, especially
because the two airlines have said they can succeed as independent companies.

"Consumers deserve the benefit of that continuing competitive dynamic," Bill
Baer, head of the Justice Department Antitrust Division, said in a statement.

Baer later dampened expectations that the lawsuit could result in a settlement,
telling reporters on a conference call that the best outcome would be for the
companies to remain separate.

"We think the right solution here is a full-stop injunction," he said.

AMR and US Airways said they would launch a "vigorous and strong defense"
against the effort to block their merger, which they said would enhance
competition.

The two airlines had been widely expected to win approval for the deal, which
was formally announced in February. They secured European Union approval for
the proposed merger on August 5 after promising to surrender slots at two
airports, London's Heathrow and Philadelphia in the United States.

The Justice Department said it was concerned that if the merger went through,
four airlines would control more than 80 percent of the U.S. commercial air travel
market.

At Reagan National Airport in Arlington, Virginia, the one closest to Washington,
D.C., the combined airline would control 69 percent of take-off and landing slots,
the department said.

But industry experts said the move was out of step with past practices and would
potentially leave US Air and American, which is emerging from bankruptcy, at a
competitive disadvantage.

"I think this is another governmental mistake," former American Airlines Chief
Executive Robert Crandall told Reuters in an email.

By allowing mergers between United Airlines and Continental, and Delta Airlines
and Northwest, the government "made a third large merger inevitable," he said.

In the long run, blocking the merger will "reduce effective competition in the
airline industry, as neither US Air nor American Airlines is large enough to
compete effectively in their present form," he said.

The lawsuit "borders on shocking" and is "marvelously inconsistent," said George
Hamlin, an aviation consultant in Fairfax, Virginia. "Assuming it prevents US Air
and American from merging, does that condemn them to perpetual second-class
existence?"

Others said the move was necessary to protect travelers who have paid higher
fees and fares in recent years.

Consumer advocate Charlie Leocha, director of the Consumer Travel Alliance,
said he was elated at the lawsuit.

"This is a stake in the heart of the merger. I don't see this moving forward,"
Leocha said. "This is the best possible and the only good consumer outcome that
we could have gotten."

While U.S. discussions had centered on remedies such as slot divestitures at
Reagan National, Leocha said, "in my meetings with DOJ and in my testimony
before Congress, I have constantly said that that won't take care of the overriding
nationwide loss of competition that we're going to face. It sounds like the
Department of Justice has agreed with me."

A hearing on Thursday to confirm AMR's bankruptcy exit plan, which is based on
the proposed merger, was still slated to go forward as of early Tuesday
afternoon, according to a clerk in Judge Sean Lane's chambers.

[Source: Reuters, Washington, 13Aug13]

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